RRR cut won't aid property market

A salesman introduces a housing project to visitors at the Suzhou Property Exhibition last month. The central bank's reserve requirement ratios cut on Monday dashed the hopes of some property developers for a broad-based credit easing this month. Wang Jiankang / For China Daily

The central bank's targeted reductions in banks' reserve requirement ratios won't revive the property sector, making it likely that developers will have to offer more aggressive price cuts to raise cash, industry analysts said.

The People's Bank of China on Monday announced a cut in the ratio by half a percentage point, but only for banks whose new loans to the farming sector or micro-sized and small enterprises exceeded half of their total new lending in 2013.

"The aim is to channel credit to the rural sector and small firms. That move dashed the hopes of some property developers for a broad-based credit easing this month, increasing the probability that more developers will cut prices," said Zhang Dawei, director of market research department at Centaline Property Agency Ltd.

Some extra money might flow into the real estate market, but not enough to make a difference, Zhang added.

According to Chang Jian, China economist with Barclays Plc, the PBOC has resisted calls for an across-the-board reserve requirement ratio cut, because it believes that liquidity in the banking system is ample, and it doesn't want to add further leverage to the economy.

"Cutting benchmark interest rates now could revive the property sector, which is not what policymakers want to see just yet," said Chang. "We understand the central bank's reluctance, but we believe more monetary easing is unavoidable, given that the economy remains fragile amid a property market correction."

Guan Yanli, marketing director of Victoria Mansion, a luxury project in Dalian, Liaoning province, said the target policy easing so far has had no impact on the real estate sector.

"Buyers of top-end projects attach more importance to the product itself instead of payment methods or mortgage rates," Guan said, adding that the company doesn't anticipate changing its marketing strategy.

The marketing director of Guangqu Jinmao Palace, a luxury residential project in Beijing, agreed with that assessment.

"Amid a market correction, we need to offer better products with more value-added services. Traditional price-cutting strategies will not work for high-end products, We're pursuing a cross-sector marketing strategy, offering custom-tailored services to attract potential buyers," said the marketing director, who declined to be identified.

The project has a strategic cooperation agreement with the Armani fashion house to develop tailor-made interior decoration products for its luxury housing. It's the first such cooperation for Armani in China and the fourth globally.

Developers of apartments targeting middle-class buyers are taking a more aggressive approach.

Hangzhou-based Greentown China Holdings Ltd, for instance, plans to offer vouchers valued at 200,000 yuan ($32,570) to existing clients, good for 85 projects in 42 cities.

The developer has long been known for its unwillingness to cut prices.

"The problem is that since most potential buyers expect more price cuts in the coming months, they won't buy now if they don't need the apartment urgently," said Kou Hailong, general manager of the Beijing office of real estate brokerage firm Century 21, a franchise for United States-listed IFM Investments Ltd.

Housing prices and sales have been under pressure since the beginning of 2014, and that won't change in the foreseeable future, industry analysts said.

The average price in 100 key cities was 10,978 yuan per square meter in May, down 0.32 percent month-on-month, according to the China Index Academy Ltd, a Beijing-based research institute that's wholly owned by SouFun Holdings Ltd. That marked the first month-on-month drop since June 2012.

Nationally, the housing vacancy rate was 22.4 percent in 2013, up 1.8 percentage points from 2011, research from the Southwestern University of Finance and Economics in Chengdu showed on Tuesday.